The deposit multiplier is the maximum amount of money a bank can create in the form of checkable deposits for each unit of money in reserves.
This figure is key to maintaining the base money supply in the economy.
It is a component of the fractional reserve banking system.
While reserve minima are set by the Federal Reserve, banks can set higher levels for themselves.
The deposit multiplier is different from the money multiplier, which reflects the change in the country’s money supply caused by the actual use of credit.
Reserve requirement is the amount of funds that the bank holds in reserve to ensure that it can repay obligations in the event of a sudden withdrawal of funds.
The 3-6-3 rule is a slang term for an informal practice in banking, especially in the 1950s, 1960s and 1970s, that was the result of the industry’s uncompetitive and simplistic conditions.
The account balance represents the available funds or present value of an account of a particular financial account, such as a checking, savings or investment account.
The annual equivalent rate (AER) is the actual interest rate on investments, loans or savings accounts that can be obtained after compounding interest.
The bank reconciliation report summarizes the banking and commercial activities by reconciling the organization’s bank account with its financial statements.
A bank run occurs when large groups of depositors withdraw their money from banks at the same time, out of fear that the institution will become insolvent.